UK Supreme Court Overturns Ruling in UK Tier 1 Case: Maxwell Holding’s Contingent Financing Not Compliant

This week, The UK Supreme Court settled a nearly four-year-old legal dispute over UK Tier 1 Investor applications rejected for what the Home Office had claimed was non-compliant investment structures. The ruling is likely to have wider ramifications.

In December 2019, the UK’s Upper Tribunal heard a case in which two UK Tier 1 Investor Visa applicants had seen their applications rejected by the Home Office, which claimed the investments had not been compliant because the funds had not been under the applicant’s control:

When the UK Home Office denied the applications for extension and Indefinite Leave to Remain for two investors in the UK’s Tier 1 Investor Visa program over the applicants’ failures to meet the program’s investment requirements, the investors took the Home Office to court.

The case, which dates back to the pre-2015 period, when the required investment amount was half of what it is today and financing of the same was permissible, sets a precedent that effectively puts an end to a practice that had raised more than GBP100 million.

The applicants, said the Home Office, had not complied with the program rules because they had invested the one million pounds in Eclectic Capital, a company owned by the wife of the owner of the firm from which they had borrowed the money, Maxwell Holding, on the condition that the money be invested in Eclectic Capital. This violated rules stipulating that the investment must be under the applicant’s control.

The Tier 1 applicants, meanwhile, argued the Home Office could not reasonably expect them to have complete and unfettered control of their invested funds at all times and that, in any case, they had “effective and ultimate control” over it.

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The Upper Tribunal sided with the Home Office and said, in its ruling, that “control” should be take to mean that the investor had the ability to “manage and/or direct the use of the money, asset, or investment” in real life, including an element of “choice and use”.

The two investors later appealed the ruling to the UK Court of Appeal, which overturned the Upper Tribunal’s decision by siding with the investors. While it could understand why the Home Office would find the Maxwell/Eclectic scheme “objectionable,” it was nonetheless lawful.

Blame, Lord Justice Popplewell indicated in his ruling, lay not with the applicants, who had merely taken advantage of a legal avenue open to them, but with the inadequate manner in which the rules had been drafted.

This week, however, Bloomberg reports that the case was this week overturned again, this time by the highest court: The money invested into Eclectic with financing from Maxwell Asset Management was never fully under the control of the applicants.

The ruling is expected to have consequences for other UK firms who had similarly channeled client funds into companies with which the advisors have a relationship.